But countering these crimes now underpins much of the case for Britain's £35bn annual defence expenditure. Terrorism lay at the heart of "Blair's wars" and is even used to justify the British nuclear deterrent. Yet the essence of terrorism derives from its inability to topple regimes or occupy states. It seeks to undermine them by instilling fear. The sure defence is not to be terrified.

The "war on terror" has had dire consequences. It has killed tens of thousands of innocent people. It has fuelled the lurch by Britain into aiding US kidnapping and torture of suspects, as revealed by a retired British judge on Thursday. It mesmerised GCHQ into complying with the secret surveillance activities of America's NSA, which proved anything but secret.

In addition it has come so to distort budgetary priorities that even the chief of the defence staff, Sir Nicholas Houghton, now warns that Britain's security is being "hollowed out". Costly and fashionable procurement is indulged at the expense of boots on the ground. The defence budget has been used "disproportionately to support the British defence industry". Private profit has been guiding strategy.

It is near impossible to understand what "national security" means to Britain any more. The country is existentially safe, and so is Europe as a whole: safe from invasion or conquest, and vulnerable only to its own financial incompetence. While Russia may lurk as an unknown military quantity, the chief external menace is from fanatics like the Woolwich murderers.

The threat from terrorism is to Britons individually, not to the British state or its constitution. We need police and spies to guard against them, guarding that can never be complete. Yet we contrive to spend on police less than a quarter of what we spend on defence.

The effort made by the defence lobby to embrace and adopt terrorism as a successor threat to the cold war has become desperate. Yet it is hard to know how to deploy modern hi-tech weaponry against an enemy as low-tech as terrorists. You cannot send a frigate against a Woolwich killer.

Terrorism has been used as a justification for most of the "wars of choice" that the British have been encouraged to fight in recent years. The wars are given a light dusting of humanitarianism until the death rate starts to climb. How those wars have made Britons feel more secure is a mystery. While the Woolwich killers appear demented, it is hard to maintain that they would have committed their act of murder had Britain not fought in Iraq or Afghanistan. There has been no evident diminution in the "terrorist menace".

The lobby that has done best out of counter-terrorism is cybersecurity, its budget rising by leaps and bounds. But whereas the cost of conventional forces is easy to weigh up, the cost of cyber-security – secret and unaccountable – is more insidious. How, then, can it be reined in?

On Wednesday Barack Obama received with apparent approval a 300-page, 46-proposal report on the consequences of Snowden from a swiftly convened group on electronic intelligence. The review was into the newly revealed scope and deception of the work undertaken by the NSA in league with its de facto British subcontractor, GCHQ. Anyone who thinks "we knew all this" is talking rubbish.

This week a federal judge, Richard Leon (appointed by George W Bush), declared the surveillance antics of the NSA "probably unconstitutional" and "almost Orwellian", to cheers from activists on both the left and the right. At the same time, the top brass of America's computing industry – including Google, Apple, Twitter and Facebook – showed collective muscle in telling Obama of their outrage at the NSA/GCHQ secretly hacking through their encryptions. Their confidentiality pledges to customers were broken and their international agreements and reputation damaged. This reportedly stung the president.

The Obama group's proposals remain mild: spying on such foreign dignitaries as the German and Brazilian leaders should be authorised only by the president; there should be an end to the "backdoor" breaking of corporate encryptions; there also should be an end to the collection and storage of bulk data – the "haystack" – merely "for the purpose of enabling future queries"; data storage should remain private to the servers generating it, and access from government should require person-specific court orders.

Most worrying in the Snowden debate was the evident collapse of oversight. A policy of tracing high-risk individuals had become a massive, intrusive trawl across the whole of cyberspace, far beyond any reasonable concern for national security. America's secret Foreign Intelligence Surveillance Court was found to have had its ruling defied "thousands of times". No one knew because it was secret.

The Obama group pointed out that a democracy that had no confidence in the accountability of those purporting to defend it would eventually refuse to support them. There were clear "potential risks to public trust, personal privacy and civil liberty".

No one pretends that the clock can be put back on data storage, or that no surveillance is needed as an aid to criminal investigation. The issue is how it should be handled and whether it should have become the preserve of an unsupervised government agency that was conspicuously unable to keep its secrets. Britons need only to recall the Soviet penetration of MI6 during the cold war to see what happens when a private elite believes it need not answer to anyone.

The good news is that the US has come hesitantly to call time on one facet of defence spending. The president and Congress mean to define and discipline surveillance in the national interest. There are no such moves in Britain. The nation sleeps as Leviathan roams.